Headquarters of the SUNY Research Foundation, the shadowy state government corporation which for years handled federally-mandated audits of New York's Medicaid disbursements. (Times Union / Stacey Lauren)

Headquarters of the SUNY Research Foundation, the shadowy state government corporation which for years handled federally-mandated audits of New York's Medicaid disbursements. (Times Union / Stacey Lauren)

Photo: STACEY LAUREN

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Headquarters of the SUNY Research Foundation, the shadowy state government corporation which for years handled federally-mandated audits of New York's Medicaid disbursements. (Times Union / Stacey Lauren)

Headquarters of the SUNY Research Foundation, the shadowy state government corporation which for years handled federally-mandated audits of New York's Medicaid disbursements. (Times Union / Stacey Lauren)

Photo: STACEY LAUREN

Image 3 of 4

The SUNY Research Foundation, the shadowy state government corporation that has handled federally-mandated Medicaid audits, has offices in this landmark building on State Street in Albany. (Times Union archive) less

The SUNY Research Foundation, the shadowy state government corporation that has handled federally-mandated Medicaid audits, has offices in this landmark building on State Street in Albany. (Times Union ... more

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Were state audits faked?

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ALBANY -- A federal grand jury is continuing to examine allegations that state Health Department managers may have conspired with the Research Foundation for the state University of New York to manipulate audits of New York's $22 billion a year Medicaid program.

Sources briefed on the investigation said federal prosecutors have recently sought cooperation, including grand jury testimony, from potential witnesses who have worked for the Health Department and Research Foundation.

The probe is being spearheaded by investigators with the U.S. Department of Health and Human Services and the state Attorney General's Medicaid Fraud Unit. The U.S. Attorney's office in Albany is overseeing the investigation. Assistant U.S. Attorney Sara Lord declined to comment on the case.

The investigation is centered on a federally mandated program that requires states to randomly audit their Medicaid programs to determine the rate of ineligible recipients of Medicaid benefits. The Research Foundation has had a contract to conduct the auditing for the Health Department.

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Several people who formerly worked for the Research Foundation have alleged that their audits were deliberately sanitized so that New York state would not be penalized for excessive error rates that could have led to New York being penalized or not receiving all or part of approximately $22 billion in federal matching funds.

The workers, who have not been identified publicly, have said officials with the Research Foundation and Health Department intentionally used inaccurate information to manipulate the outcome of the audits so that New York would have a lower error rate. The employees also claimed their access to audit files were restricted and the "random" samples of cases plugged into audits were not random at all.

The allegations also are that the Health Department was able to review and change the audits before they had been submitted to the federal government.

A person briefed on the investigation said two Research Foundation workers who complained to Health Department managers about the situation in April 2008 were fired within days.

A person briefed on the case said investigators are examining allegations by a former Research Foundation worker that managers for the non-profit agency and the Health Department responded to the audits by ordering data fields to be deleted and replacing them with a second database, which had been sanitized, for the auditors to review.

Last fall, at least seven employees with the state agencies received letters from federal prosecutors notifying them they were targets in the investigation. The letters said evidence was being prepared for presentation to a federal grand jury for indictment in a case involving fraud, health care fraud, falsification of records and conspiracy.

Some of those who received the letters were later told that they are not targets, and that prosecutors simply wanted to learn what they knew about the allegations, according to a person familiar with the case.

Meanwhile, several Research Foundation workers have alleged they were fired or retaliated against after questioning the practice of altering data or manipulating information such as residency requirements of Medicaid recipients.

Ava Dock, who lost her job at the Research Foundation in December, filed a federal whistleblower complaint against the Research Foundation two months earlier in U.S. District Court in Albany. Dock's complaint, which is pending in federal court, alleges her job was eliminated because she stood up to supervisors who were altering data in their audits. The complaint seeks at least $250,000 in damages.

Dock's complaint also accuses an unnamed Research Foundation supervisor of altering records before the information was released two years ago to investigators with the U.S. Department of Health and Human Services office of inspector general. The OIG began investigating the New York program in late 2008.

The complaint, and allegations from other Research Foundation workers who have not been publicly identified, accuses the Research Foundation of submitting documents to the federal government purporting to show an "error rate" in its Medicaid program of below the maximum permitted rate of 3 percent. The actual error rate was in excess of 20 percent, the workers have claimed, according to sources briefed on the case.

The Research Foundation considers itself a private, not-for-profit agency though its leaders are mostly made up of top SUNY officials. A Health Department spokeswoman said the Research Foundation's auditing contract for the work expired in December and was not renewed.

Brendan J. Lyons can be reached at 454-5547 or by e-mail at blyons@timesunion.com.